Earnings Call: Q2 2020

Aug 6, 2020

Good day, and welcome to the Sunrise Analyst And Investor Call, on occasion of the first half twenty twenty results. Today's conference is being recorded. At this time, I would like to turn the conference over to Tobias Raffert. Please go ahead, sir. Thank you very much, Molly. Good morning and welcome to our analyst investor call on the occasion of the publication of our H1 results 2020. All corresponding materials including the presentation have been published on our website this morning. The replay of this call will be available later today. Today's call will be held by our CEO, dotcom, our CFO, Olaf Singer. After their presentations, we are open for your questions. Thank you, Tobias. Good morning, ladies and gentlemen, and welcome to our investment analyst call on the results for the 1st half of twenty twenty. Ralph and I will run you through the presentation and update you on the numbers and status our objectives. Olaf will provide details on our financials following my overview on our first half year performance. I will also give an update on our outlook, which has partially raised And as always, you will have the opportunity to ask The global Corona pandemic has rapidly changed every day life around the globe. No matter if in the North Southeast Or West People, politicians, and businesses have been dealing with a global health crisis on an epic dimension. The lockdown has caused consumer demand to significantly slow down in some areas while it created completely new needs in others. It required businesses to react quickly be in manufacturing, in servicing customers, launching new products and protecting employees in regards to health and safety. This has not been any different for Sunrise. We have introduced new production processes, adjusted our supply chain and introduced new forms of virtual collaboration. If you ask me personally what our recipes of success for the past 6 months has been. This is clearly the combination of our very diverse portfolio, our robust supply chain our flexibility and the commitment and the committed These four factors have been decisive to fully continue our operations worldwide and to supply customers in a reliable manner. These strengths are reflected in our half year one results illustrated on Chart 4. We increased our sales by 7.6%. On an organic basis, this translates to sales growth of strong 3.4% in the current environment. Our EBITDA spiked by more than 12% to 1000000. We delivered an excellent profitability at an EBITDA margin of 21.6%. Our business free cash flow is up by more than 37% to more than 1,000,000. We are very pleased that these results and will on top of that increase our profitability target for the full year 2020. I will come to that later. Moving on to the Chart 5 for our sales development On group level, we grew sales to 1,000,000 up to 7.6%. Organic top line growth amounts to 3.4% with a 4 segment contributing. Q2 specifically organic sales grew by 4.6%. Please turn to Chart 6 for the individual performance of our segments. Student Care achieved solid organic sales growth of 2.6%. On a reporting basis, sales have been stable and reflect predominantly currency effects. The segment benefited from strong demand in consumer fragrance and oral care, each delivering high single and double digit percentage organic growth. In addition, our increased rental capacities have been sold out given the strong need for hygiene products across the globe. Sabre amounted to 1,000,000. The up line has remained stable by and large both on a reporting and organic basis. Due to the lockdown flavor particularly benefited from demand for applications used for cooking at home, while applications such as beverages and conceptually slow down. The Nutrition segment continued its strong momentum. Organic sales rose by an excellent 10.5% to 474 1,000,000 on a reported basis, sales grew by more than 38%. ADS IDF contributes 1,000,000 and exceeds our expectations. Pet food business was once again a key growth engine for the segment. We are aware that it is key for you to better understand the dynamics in our portfolio due to the corona pandemic. Let me explain Chart 7. It illustrates the changed order patterns for our customers in the shift in our portfolio during first half year. As you can see our three segments contribute to a very balanced business. Yes, there has been reduced demand, for example, in average applications, fine fragrance and sun protection. On the other hand, demand for specific solutions, when a, for example, menthol and oral care applications, they are both used in many hygiene products. Also applications such as savory flavors and food nutrition. So very good demand due to consumers increased need to stay home and cook at home. Clearly, the upcoming month will remain challenging with the corona crisis. Given there is no vaccine yet and we do see individual hotspots occurring. Actually, Sunrise has been able to navigate through these times very successfully. We have compensated for lower demand in certain areas with increased orders in others. We have been diversifying our business early on in terms of regions, customer types and portfolio. It is exactly this degree of diversification. Which makes us so resilient as a group, but also Before we move on to our outlook, let me hand over to all of you. We'll elaborate on some of the financial PTAs more in full detail. Olaf, please go ahead. Thank you, Anton. Ladies and gentlemen, also a warm welcome from my side. As usual, I will walk you through our financial performance in some more detail. Let me start on slide number 9. Corona is a major challenge for the whole world, including our clients, our end consumers, our employees, and our planning. We are very grateful and very satisfied despite all these challenges. We have achieved a successful 3.4% organic growth in H1 and could even further increase to 4.6% in Q2. The good organic growth is a result of our well balanced and broad portfolio mix and our industry leading backward integration. FX was negative was 2.1% in H1, mainly driven by Brazil, Argentina and Mexico, while the US dollar was still supportive. The comment on ADF IDF is sales of 1,000,000 or 6.3 percent portfolio growth Our latest acquisition is running above expectations. All integration projects are fully on track and the expected synergies are delivered. TFIDF benefited during Corona as some of their offerings like different solutions supported the eating at home environment. Comment on price volume for the group, we saw around 20% price versus 80% volume in H1 and Q2. Please turn to Slide 10 for the profitability of the group. Gross profit increased 5.5 percent to 1,000,000, mainly due to the contribution of ADF IDS. Our gross margin came slightly down from 40.9percent40.1percent, mainly with the consequence of a different cost split at ADF IDF. They operate with an above group raw materials, hand manufacturing quarter, but with a lower operating expense ratio. EBITDA for the group increased 11.9% and achieved 390 1,000,000. Our EBITDA margin reached 21.6% supported by strict cost discipline and lower operational expenses, for example, related to less business travels and limited trade fair activity. Please remember, we have not been in such a good margin situation for some time last time before the raw material crisis. Our backward integration proves again to be a safety net during volatile times, allowing for profitable growth. Our resilient and broad based business model obviously gives us visibility in challenging times. D and A increased to 1,000,000 for the 1st 6 months compared to 1,000,000 for the comparable period in 2019. The increase in depreciation is mainly related to CapEx Investments during previous periods. The preliminary finalization of the ADF IDF purchase price allocation contribute €8,000,000 to amortization and €1,000,000 to depreciation in H1. For the full year, we expect an ADF IDF related G and A effect of 1,000,000 before tax of which 1,000,000 amortization related. For your modeling, please consider a D and A amount of to million for the group for 2020. Let's now dive a little deeper into our three segments starting with Centene Care on Slide 11. Centene Care reached an organic growth of 4 in Q2 after 1.2% in Q1, which brought them in total to 2.6% in H1. Price volume improved 20% price and 80% volume supported by the new natural volumes. SSENSE care EBITDA came in at 146,000,000 after 140,000,000. An increase of 4.2%. EBITDA margin amounted to a solid 20.6% after 19.7% mainly due to increased turnover and reduced cost in sales and marketing as well as in research and development. Turning to flavor on page 12, flavor organic growth slightly declined by 0.3% in Q2 after 1.6% in Q1, which caught flavor in total to an organic growth of 0.6% in H1. Price effect represented about 80% while the volume increased during H1 overall was a small positive. Flavor, EBITDA increased 2.2 percent to 1000000. The EBITDA margin reached 23.2 percent after 22.6 percent last year, mainly due to lower raw material costs and good SG And A cost management. On Slide 13, you can see that nutrition is achieved the fastest organic growth was an impressive 14.7% in Q2 after 6.1% in Q1. And total 10.5 percent for H1. Price volume in H1 was around 20 to AD, especially in Pet Food, we took advantage of the investments into capacity expansion over recent years. As mentioned before, ADF IDF contributed $106,000,000 turnover. With the support of ADF ideas that also related to the strong performance of pet food, nutrition was able to increase its absolute EBITDA to almost €100,000,000 for H1. Profitability strongly improved by 150 basis points to an EBITDA margin of 21%, which compares to 19.5% during the same period in 2019. Our strong momentum in nutrition shows that building a portfolio beyond flavor and frequencies has been visionary to deliver superior growth for the best and broadest portfolio in the industry. Please turn now to Slide 14 for our bottom line. The financial result decreased despite high FX volatility by 1,700,000 to minus 29,000,000 primarily related to higher interest expenses in connection with the IDF acquisition. Our tax rates remain stable at 27%. Therefore, within our expected midterm corridor of a 26% to 28% tax rate. EPS increased 9.6% to a new record level of 1.25%, mainly because of our increased operating profit. Slide 15 shows the development of our youngest key performance indicator business free cash flow. Business free cash flow in H1 increased by 37 percent to CHF 190,000,000, which corresponds to 10.5% of failures. The good result follows a strong EBITDA growth. The working capital growth below the top line increase and lower CapEx compared to the previous years. For the full year, we expect business free cash flow to be around last year's good level of 40% of sales. Slide 16 represents our healthy balance sheet with an equity ratio of 41.2%. The full year 2019 figures shown on this chart are restated and include now the impact from the preliminary EDF IDF purchase price allocation. Overall, the balance sheet had no big changes worth mentioning maybe the change in cash as we paid our full dividend following our virtual annual general meeting in June. Please move to Slide 17 to our solid method development. In the light of Corona, strengthen our liquidity positioned during the first half of twenty twenty. Next to our existing revolving credit facility of 1,000,000 We secured additional bilateral credit facilities amounting to 250,000,000. All facilities are currently undrawn. Please further note that we issued a 500,000,000 bond at an interest rate of 1.375 percent. To early refinance 2 maturities which are up for repayments in Q4. The related funds came in on July 1st and therefore not reflected in our cash position as of June 30. As a consequence of these financing activities, we have established a very sound and solid liquidity situation for Simba. A net debt position of 1,650,000,000 resides in a leverage of 2.2 times EBITDA as of June 30. Net debt, including pensions, lease, and similar obligations, reflect the leverage of 3.0 times. Despite the increasing pension provisions following lower interest rates over last year's, Our long term net debt including pension target remains unchanged at 2 to 2.5 times EBITDA And our clear goal is to keep a financial profile for semis, which supports our investment grade rating profile. In summary, we provided a strong set of financial figures for H1 2020 during unprecedented times, which is giving us lots of comfort for the remainder of this year. And with that, I would like to hand back to Hans here. Thank you. Finally, I would like to present our updated outlook for the upcoming month and our 20 25 objectives. No doubt the corona crisis remains a challenge and the time we are in is special. But it is neither black nor white. It is about managing uncertainty on the one hand and seizing opportunities on the other. We have done very well in the first half of this year and are therefore confident for the second half also. Even though we have limited visibility on the course of pandemic, we consider ourselves well equipped. We therefore confirm our objective to grow faster than the relevant market, which is expected to grow between 3 and 4% this year. With respect to profitability, we have changed our view Based on the strong margin development during the first half of the year, we are raising our guidance we now aim at an EBITDA margin in the range of 21% to 22% for the year 2020 This reflects profitable growth and lower operational costs. Let me conclude with a view beyond this year on chart 20. Our midterm targets with range until fiscal year 2025 remain unchanged. We strive to remain among the fastest growing player in our industry. Our targeted annual growth rate remains at 5% to 7%. In addition, we want to be amongst the most profitable players in our industry and aim at an EBITDA margin in the range of 20 23%. Our environmental objectives also remain fully in place. With these strong prospects, I would like now to open the call for your questions. So, here's over to you. Many thanks, Hans, and thanks, Ola. Turning to Q And A, we are now happy to take your questions. We kindly ask you to put only two questions. If you cannot take all your questions during the conference, we will answer the remaining questions later today. Many thanks and Our first question will come from countries like Bank of Bernstein. I'll start with 2 then, please. On the margins in H1 and expectations for H2, could you just it's a detail around how much of that would be temporary cost reductions from over travel, entertainment, fares, etcetera, and if you think some of that might be sustainable going forward. And the second one, one variable cost side around raw materials. Can you give an update what you see in your glass kit of raw materials at the moment? And if there's any scope for new price increases coming through? Pull up, feel free to hop in. I'll start with this. Margins in half year, yes, as we frankly committed and admitted, we, of course, mitigated through the crisis by being very, very careful on travel entertainment on all these things. So You rightfully suspect not all of this will be a permanent basis, but rest assured some of it will honestly, it's beyond my knowledge at the moment to predict exactly how much it would be. But rest assured, and I think I'm speaking for pretty much all companies. The home office and travel policy and the use of video conference on the Wazamu and will be different after the corona crisis whenever it is there. And it's no question that everyone including us is committed to keep some of these savings going on on a permanent basis. Having said that, raw material cost development as we said, some decrease in some areas on the other side. We see increases on the other. Please be aware that it's just a small amount of our raw material basis, which is dependent on mineral oil based products. The larger a path that comes from natural derived products. And there's with a big and broad range of different raw materials coming from other nature. It's always some products up in price and some going down in price. Just giving you one example. The question which we discussed in previous meetings was vanilla price that was going to record high. This is coming down significantly, but rest assured is a big range of products which are going up. To cut it short, we expect the raw material price development to be all in all flat and continue to do so. I hope that answered the question from my end. Olaf, you want to add something? Yeah. Good day. I would just jump on that in a way that, if you have a normal raw material situation, we, of course, will also work on price increases in the normal environment, which pretty much leads to coverage of inflation. So, the ambition says the 5% to 7% growth mid to long term is there. And onethree of that should be coming from price. And the same on the margin, as Jim elaborated on the ambition to keep some of the cost savings. Also, here, the move to long term expectation is that we move somewhere between the 20% 23% margin. And if you can take some advantage from us saving to the ticket. Our next question will come from Thomas Swoboda of Societe Generale. Please go ahead. Your line is open. Yes. Good morning, everybody. I will take two questions, 2. Please, the first is on flavors. I'm just wondering what what what should we think about the effect of the vanilla price pass through that was obviously a tailwind for for a couple of years. Now it has it has it has become a a a a headwind. Could you are you able to are you willing to quantify how how much does it hurt the flavors performance in in Q2? And should we think about the negative base effect for for the next for the next 3 to 4 quarters coming coming from that. So that was my first question. My second question is hopefully rather quick is on your interest expenses. The the refinancing, of funds, it was not included in the financial result in Q2. What what advantage should you do do you expect on your refinancing costs going forward? Thank you. Thank you, Thomas. Let's do it this way. I'll take care of the flavor question Olaf is already nodding. He does the interest thing. Paula takes care about the money. Okay. Flavor vanilla price, frankly, I will not give you a detailed number on the vanilla. The price impact, but obviously us being leading in a key area with our initiatives in Maraca or it has an impact. No question about it. On the top line, yes, we have seen it. It was was a tailwind in the past years and it is now a bit of a headwind. We will be able to manage that and the flavor division will able to cope with that. No problem. We will see some of it in Q3 definitely going forward. But nothing which concerns us. In particular, in view, in Thomas, it has pretty much no impact on the bottom line as the vanilla business we have is not, depending on that, we have a certain margin, which we are getting and leaking regardless if the price is high or low. So that's the good news and that's reflected in the very solid bottom line performance of flavors. So for your question, that much, I would say, you will continue to see something in Q3, but you also have seen our confident guidance. So Sunrise is very well prepared to even deal with these things, and we will have other areas where we will make it up. Okay? Pull off interest? Yeah. So, as I said, we will refinance 2 maturities, which are due in Q4. They, have higher coupons, the savings on this $320,000,000 repayment volume around 6 to 7,000,000, which you can incorporate in our interest expense number, going forward. And this is based on the bond refinancing, which we did in June. That's perfect. Thank you. Welcome. Our next question will come from Lisa Deneuve of Morgan Stanley. Please go ahead. Good morning, everyone. This is from my side. First of all, newly switched division delivered 14.7 percent of flight growth in the next quarter, with the percentage growth in his pet. I wonder if you could provide us some detail on the performance across the regions, which was positive across our regions. I understand, but a little bit more detail there would be helpful. And also your expectations for the second half. And, especially on the CapEx projects, CapEx was a little bit lower in the first half. I'm just wondering in terms of, project pipeline you can give us this with granularity of what will take place given COVID disruption in the second half. And sort of what we should think about in terms of budget. Thank you. Okay. Hey, Alice. I'm happy to take your question. First Nutrition. I believe it shows our early move moving in nutrition with the acquisition of Diana followed by ADF. IDF is paying off and proves to be the right The regional growth in Nutrition, I'm happy to report pretty much in all regions. There was no weak region. There was nothing where we could specifically say this was a big region. So having said that, it was solid growth and imagine with these numbers organic growth in the double digit with a growth rate of 37% in total you cannot have a region falling back behind expectations. So it was in all regions everywhere beyond what was expected, putting in maybe some areas. Compared to the first quarter, we saw also a good bounce back of food ingredients with a strong continued performance of pet food and with a delivery beyond expectations of ADF, IDF. All in all, there's no reason for us to be concerned about the second half year. We expect solid continued performance of nutrition also in the second half of the year. And as you see, we are pleased to report It shows the acquisition of ADF IDF was again the right one and it is contributed. Leading for the second question, CapEx, I think no one should be surprised. We always have said that the 7.2 percent CapEx rate was an exception because it raised a lot of questions on your end. And we firmly believe that some investments will be the right ones. And what's happening now, it is proof that this is coming in. We would not be able to cope with the strong organic growth in nutrition if we would not have capacities for that. We would not be able to serve the strong demand in personal care and oral care products if we wouldn't have built the additional capacities in Mentor. The message, Lisa, to you, is we are doing this stuff when the time is right. We're not looking on on cyclic or whatever things we think long term. And looking on this year, we still have ambitious growth expectations. One thing which we hope will help us is the additional, again, increased capacities of rental will come in fourth quarter of this year. So 3rd quarter no change in that respect. All capacities are used up. But we continue to heavily invest and complete the investment programs, which we have clearly outlined in our capital market the beginning of last year. Having said going forward, expect us to have a CapEx ratio of, say, around 5%, sometimes a bit more, sometimes a bit less. Nothing staggering, but rest assured, Lisa, we will invest wherever and whatever makes sense. I hope that answers your question. Thank you very much. Oh, you're welcome. We'll take our next question from Matthew Lee of Bank of America. Please go ahead. Hey. Good morning, everyone. A couple of questions. The first one on the performance of ADF, which you said exceeded your expectations I'm just wondering if you could decide to pay the uplift from the overall market growth, which seems to have benefited during lockdown versus the specific actions you've taken, to realize synergies. And then the second question is on the flavor division. And is there any visibility you have on the second half as Tupelo is improving particularly if things like food service outlets begin to reopen again. Thank you. Okay. But now I'll start all synergies ADF IDS. First, we have to admit the situation in the U. S. Is not fully transparent to us. So we're navigating through chaotic times and so far we have done obviously very well but rest assured, be it in ADF IDF or be it in chemistry, our production locations. Our locations are in the middle of the crisis hotspots of corona. I have to clearly tell you that. And that gives us limited visibility and we navigate through this on a daily basis. Speaking about that, we were happy to report the just recent hurricane did not affect one of our sites. So you see what area we're in. Having said this disclaimer, the good news is despite all these challenges, the bottom line is the ADF IDF acquisition, even in difficult times to prove it was the right one. It was the right one which contributes to our business and it's, rest assured, a lot of the synergies, which reflect us still out there, in particular, the extended product range, the Act derived product basis using in other product applications, which are unique to similar in pet food or in aqua, that is just where we scratched the surface. So in that respect, I would say it's a bit overconfident, but the S is yet to come there. So having said that, I would feel that with ADF IDS at the moment not lead you in any speculation, but at least give you the firm confidence that was a good acquisition and the contribution is very obvious. 2nd, growth serving and growth in flavors, in particular with respect to food service, yes food service was impacted also in some words, no question about it. I think overall, our business in flavors was about 10% to 20% something in that range, but it is over seasonal, but it was impacted. No question about it. But we are happy to report, we have built such a resilient portfolio that we are able to cope with this. We have delivered a stable turnover deliver the development despite these challenges and a very healthy bottom line performance. Going forward food service will come back. No question, but it's clearly linked with the development of corona crisis and Martin, none of us has a clue how long this will go on. None of us has a clue how long this will go on. But we are optimistic also for this business whenever the corona crisis will be will be over. And, but frankly, we expect this crisis to go on for at least the rest of this year. Rest assured, the flavor division at Tsumbras is prepared to cope with that. Thank you. I hope that is, for the moment, as precise and honest as can be. Okay? Thank you very much. You're welcome. And we will take our next question from Heidi Risenin of Exane BNP Paribas. Please go ahead. Good morning. Thank you for the detail on Slide 7 where you talked about the trends by subsegment. Going into q 3, have you noted any major changes in any of these tickets? And then the second question is on the, Latin America. You said in your press release that, the region is unaffected by the pandemic. We do hear a lot about, you know, issues in Brazil from other peers and just reading the news. What is the outlook there, at the moment? Thank you. It's 2 years. I don't need to be fine. Heidi, thanks for the question, to have you in our call. So Chart 7, yeah, I think you kind of has done an job putting that together, it shows the situation on one slide. And honestly, there was no big change from half of quarter 1 to quarter 2 and we do not expect a significant change in Q3 to happen. So we have to navigate with this expect this to be the picture at least for the next few months to be. And, we'll see what then happens The message is also clear, Heidi, so far, there's always areas to pick up weaknesses in some areas, but we didn't want to lead you with the impression if you see our overall figures, we have not been impacted. We have clearly been impacted and we just adjusted our processes accordingly. Having said, that leads us to situation in Latin America. And that is also pretty much the same situation like the previous calls. Heidi, we hear the news as well. In Latin America, it's chaotic. The situation is really grammatic also for us. And, I can tell you only orders with surprise how well we continue to navigate through this, but if I would be able to tell you exactly in numbers where and what I would mislead you and I'm far away from doing that. I have to say I have to give credit to our team, which is obviously very committed dealing with this chaotic situation, we had so far no downtime, no downturn. And the business is just keeping to go stable. And, honestly, as for now, in spite of the crisis there, I come to the to believe there's no reason to believe that in the coming quarters, we see a slowdown But the rest would be speculation. The visibility we have there is really limited. The people cannot get out due to quarantine and corona and we cannot get in. So as honest as it is, I would never lie at you. Okay? Thank you for that. You're welcome. Our next question will come from isha Sharma from MainFirst. I have just to please, regarding LatAm, just to follow-up, how much of the growth that we have seen, which has been very strong in Q2, especially It actually saves us to dollar pricing. If you can give us some color there. And, the other question would be around positions, do you see increased opportunities given the current prices? And if yes, which area should we expect you to be more Thank you. Thanks, Isha. Also good to have you in the call. I would say as you were not too happy with my answer for Heidi on the letter, so I I've been not too tall up to give you some numbers. So all up will make you happy with that, and I take care of all the acquisitions if you allow So acquisitions, of course, we continue to look in acquisitions. It's a part of our strategy as well. But our ambition is, if possible, to surprise you and to catch you or get you with acquisitions, which are not on the market offer to everyone. And we look in all areas where we're active. No question about it. We continue to do so. We think long term in our acquisitions, so we do not just grab the opportunity because someone is in trouble or something is in trouble. If it is a good acquisition, We are ready to go on whatever and how and wherever it is and we continue to look on candidates that much I can say has not changed to the past, but when everyone was busy in acquisition, bonanjas. We stayed out of it, but we stayed cold headed and it's a promise if there is a good opportunity, we'll be there like we were at ADF, like we were at Diana, like we were at Innova. So expect us to be active in that area on an ongoing basis but we will stay coldheaded and not make short term, not thought to move. It is a lot of money we are talking about and we're very conscious and doing the right step at the right time. So expect us to be in that market whenever the time is right and whenever it's there in all segments where we're active. All of us know some numbers for Isha. So Isha, I hope I can make you happy from an answer. I'm sure you can. So, Latam, around 35% to 40% of the business was volume driven and the other part was price driven. You know that on the price side, we we work, luckily, from my active in the US dollar price environment, and that holds true for top line as well as for the cost side. It's more Sensing Chair where U. S. Dollar is more prominent flavor party. But that helps in the current environment not to fall into a big trap in situations where currencies are devaluating at times. That's the LatAm situation, which is a good contributor, but good message here is a lot of the growth is volume driven. Thank you very Our next question will come from Katie Hutchison from Davy. Please go ahead. Hi. Good morning. Hi. Roll off and see us and congratulations on a good set of results. My first question is on mix. Could you just give us an idea as to the mix component within the q two number? And what your visions were driving that and and giving you raised guidance on margins. Are you baking in any assumptions on positive mix a boost up margin, for example, a reduction in fine fragrance. And then secondly, my second question is on probiotics. So we're seeing good, probably, delivery, and and I wonder if you could explain some of your ambitions behind probiotics and where you can deploy some of that technology the core Sunrise business? Thank you. Yes. So, from a big perspective, I think the big change we see at the moment shifts in the for you. This is, of course, which comes along with the crisis. We've explained where they are the contribution definitely comes at the moment from the pet food business. As you know, it's a it's a good profitable business, which also supports our March environment. We are very happy with the ADF IDF development. As I said in my with the speech We have, pretty much finalized the purchase price allocation, the effects are in there. That should be a good contributor going forward, also from a margin perspective. And fine fragrance, I would leave to answer him to comment on on his view how the Prime fragrance business will develop. And I'm sure he's also on probably So, Riley, surprisingly, I'm also in the call and, and, is looking in. So I'll take care of that one, 5 fragrance will bounce back. Our commitment to 5 fragrance is unchanged. We have just opened in Paris a new place for mainly fine fragrance, it shows our long term thinking. Will we see a significant positive impact for fine fragrance after the significant slowdown in second half for the in second quarter, 4th quarter 3, I don't expect it. And for quarter 4, when the Christmas season is, it's questionable to be frank. But Sometimes, you have to think longer time. Bear in mind, 1st quarter, our 5 fragrance growth was about 15% and gone down pretty much to nothing in the second half quarter. It will come back probably within the next year. So that having said that is the mix on fine fragrance. Our commitment to this business segment has not changed and we will deal with this change of products as we have done with the other ones. Leading to probiotics, okay, I think I take that one as well. The question was probiotics seemed to be a promising area and it's good that we are one of the few companies in our industry who have a strong probiotic link in there, but the idea of taking an anti investment in Pro V was primarily not changing something in Probi. Probi is doing very well, as you know, but is getting access to world class probiotic technology platform and using it for the applications which are not so to speak not traditional probiotic application areas. And we are very successful in that. So we start in cost magic ingredients. We do it in other areas. Just to be a bit more specific, we have developed a product in skincare consume reboot based on probiotics, which is doing very well, which is performing excellent, customers love it, We're working on a dendruff anti dendruff product, a product for oral care based on probiotic will be launched in the second half of this year. We're just in the clinical trials, the final clinical trials, but it looks very good We're rolling out this probiotic platform to aqua and pet food. And this is one of the very few technologies, key technologies which have the power to replace chemistry by biology. And that is why we are on the forefront of this technology. So you see we're full steam moving ahead and we rest assured we will get our share of that public. That's great. Thank you very much for that color. Our next question will come from Geoff Haire of UBS. Please go ahead. Your line is open. Just wanted to ask you a very simple question. Obviously with IDF, sorry, ADF IDF coming in, I mean, if you've got a bit of U. S. Exposure, just help us understand what the FX impacts would be given the strength of the dollar that we've seen recently? You're saying this is a simple question. That's a complicated question. Nevertheless, I think you saw in our half year report, you're working with an average rate of 110 currently. So for the next few months, it will be decisive where the U. S. Dollar grows. As a big, indicator, I would say that, once the movement on the average rate means around 12,000,000 dollars, $13,000,000 top line and corresponding around $3,000,000 in EBITDA. As you all know, we have our cost also in the country of where we sell. So there's a good natural hedge environment. So, margin wise, we are doing fine. But the impact, as I described, is really linked to the U. S. Dollar environment. For the first half, we still had tavern from the US dollar. And if it just depends now how it continues, might be a slight headwind as it moves in the second half. Based on current market conditions. And is that your major currency exposure? Or are there others that need to be as well? Definitely our major currency exposure is about 1 third of Thank you. Welcome. Welcome. We'll take our next question today from Andreas Fox of Binger Please go ahead. Your line is open. Yeah, good morning. First one is on industry dynamics. I imagined that the time of lockdowns and, like, the pandemic clients, priorities do shift I mean, maybe away from innovation and more on business continuity. I mean, we see the numbers of the large players, or could you please coordinated industry dynamics you have seen in the first half between maybe you, the large caps and the small and medium players, at least in a time where you have been rather gaining share or not. That's the first question. And then second question for a high speed spectrum, congratulations on reaching a share price above the home of Europe. I imagine you're very pleased with that development. Since I'm covering your stock, it is a multiplication by 5. Now looking at the next 2 years, Could you like to share what the your key priorities will be in those 2 years from continuing the business or making it larger? Or keep bringing up the profitability to peers or maybe prepare the structures for the future. So in other words, and put this, Heinzio from working on in preparing his legacy at Sunrise. Thank you very much. Okay, Andreas. I think I take both questions. The development of the customer environment. First point on, in between the lines, the question was, do we reshuffle our costs on develop on all these, no, they are not unchanged. So the long term research projects have not been slowed down. We believe in our long term view and long term thinking directly related to Katie's question on probiotics So all this commitment has not changed. The briefing activity on the other side, that's the short term development with some clients is down in these crisis times. Absolutely. Absolutely. And so some of these developments activities, have to be, shifted around in other areas where it's, doing that up. But the message is, again, nothing dramatic if we talk on development, basic research, long term, research projects have not changed or will not change at all short term. Depending on the briefing activity into one or the other area, we would be foolish not to shift some of these activities where the demand is. Having said that, I'm not in the camp, that major customers gain share the cost of small customers, I think there's just customers who have done their homework and there's other customers who have not done their work and be it big or small customers, they will gain market share in these, in crisis terms and we see small gaining market share at cost of other small customers and big customers losing or gaining market share as well. And Andreas, that's the same in our industry. You have seen from the 1 or the other flavored fragrance supplier solid numbers, 1 being us and maybe others. And let's see how the others are doing and you make your calculation who is winning and who is gaining market share. I'm not talking about the competition. I prefer talking about our cases. I believe that's good enough. That leads us to me personally what is my priority for the next 2 years? The good thing is first. Obviously, a strategy, a plan, and you're with Sunrise, as you indicated, since a long time. We had to start everything from fresh. We were the losers in the industry when we started, when I started, there was, by one of our competitors out, what means summarized it means save your money, reinvest somewhere else. And, how wrong they were? So obviously, we had to change everything. We had to come up with what we call backward integration, which is obviously now a new role model. We came up with with expansion beyond flavors and fragrances in new areas and far away from saying how smart have I been? I was simply lucky. It all worked out in the right way. But, Andreas, that is general management. No one needs an unlucky guy. So looking forward, my priorities is not losing track, not losing ground. There's a lot still to do. And yes, the share price is in a record high, but the sky is the limit here. And there is a lot of fresh ideas, which I still have in mind, including maybe some surprising moves in the 1 or the other area. So That is my ambition. And I think there's still something to come. So I would leave it there for the moment. I think that's good enough, Andreas. I hope so. Thank you. Our next question will come from Adam Collins of Hyperion. Please go ahead. Yes, good morning. I have a couple, please. Nothing as exciting as the last one with a a couple here. So first of all, on raw materials, you mentioned you expect naturals to be flattish. We we discussed vanilla sharply down. If I'm not mistaken citrus after several years of where they're in blight related issues is also down. So could you say what is up such that the, the balance overall is sort of flattish. And then the second question was on nutrition. Obviously, very strong second quarter, 14% organic. You were talking about being very happy with ADF and IDF, of course. To what extent was there some benefits from Century Harding? Okay. I'll take, I'll take the first one. What is up? Yes, Vanilla is down, you're right. The mineral is sometimes up, sometimes down, that is mostly driver. Citrus is going down for the moment, in particular, several spices are going up to be all have just brought up the picture where prices are going up. Smices rest assured and some extract floral tracts are going up. So overall, we remain the situation of raw materials because we buy 2000 to different raw materials that the main driver is not declined in raw material prices. So overall, it is right as you said, it's not citrus. It is not, vanilla. It's not mineral oil. It is some scientists. It is some flower extract. Overall, flat as we see. So Yes. So we have increases in foods, for example, we have increases in the raw material base of what pet food needs So that is, with balances out at the end, the whole portfolio across the group and makes it pretty much flattish for Samad. Our next question will come from Second question is on country holding in pet. Okay. Okay. No. No. I got it. Sorry. So, no. There's no stocking, nothing not perceivable, the situation, but it's just a healthy market. The bigger trend is in fact and will remain in track and you have seen us not withholding at all for the second half of the year. We do not see any inventory building, pantry building there. So, no, don't include that in your model, okay? We will take our next question from Charles Brackley of Credit Suisse. Please go ahead. Your line is open. Hi, Angela. Good. Hi, Ella. Thanks for taking my questions. I just wanted to ask some of the nutrition EBITDA margins half on half a little lower. I mean, should we be thinking, how should we be thinking about margins into the second half? Should they be more like the 1st half or more like h 2 19. And can you explain the moving parts there? On flavors, you said the price effect for 7:40 to 20, and it's obviously basically flat. So just to be clear that both of them are essentially 0 in the past And then finally, can you give any indication of what the contribution of CapEx project was to organic growth in the first half? Okay. I'll start with the Nutrition EBITDA expected to be similar in the second half as it was in the first half. There is no no uplift or down list to be expected. The growth in flavors, yes, it was, if I got this correct, it was flat, stable, but also flat. But as we said, there have been some significant impacts on the one area. Some others contributing on the other one and we will continue to see certain portfolio shifts going on, but nothing nothing significant, short term as high DSOs. So expect pretty much the same extra second half year. CapEx CapEx contribution in some areas. There was the cosmetic ingredient factory the selection place you have seen on the Capital Markets Day beginning last year. The 1st phase of expansion, the 2nd phase now is up and running as well. So that is a big one which contributed the fragrance, increase of capacity, which we have done here in Germany, helped us to cope with the increased demand in some areas. And also as I indicated, the CapEx investment in pet food, additional capacities has helped. So the question, what will we see significantly for the rest of the year? In terms of CapEx investment currently we're doing and where we hopefully see the benefit in the fourth quarter is the menthol expansion. The 2nd expansion, we're doubling our capacities in the U. S. Again. And as for now, we're fully on track with that one. So we should enter the market in the 4th quarter And that's why we still are guiding to this ambitious growth rate. We expect the contribution if the medical expansion goes on as expected in fourth half year to support that one. Can I just ask you a quick follow-up on that? Like, I guess, how how important is that ramping up in the future? Well, we will not fall off the cliff in Q3, but with the growth rate of, say, 3% in this year and us having the ambition growing faster than the market, which is 3% to 4%. Something has to happen. And So it is significant in Q4. The mental expansion because it is very big and many of you have seen already the distillation tower next to the one which we currently use for distillation and it was obvious to every one of you who was part of our Capital Markets Day. This is big. Okay. So, yeah, it's significant. And for now, the good news is it looks as if we will make it in the course of quarter 4 to the market. The good news is it's sold out. Thanks. You're welcome. I would like question will come from Ranoff Orr of Redburn. Thanks. 2 for me. So firstly, I'm just wondering if you could, help me understand what happened to volumes in new in nutrition food in LatAm. I guess if the polar pricing impact was so strong, volumes must have been very negative for sales to decline. You know, possibly double digit, in in the first half. And my second question sort of follows up, on the previous one, can you give us a bit more of an indication of the new capacity in pet food in Latin America and how much that contributed to both? Can you the volume growth, but also the volume growth in LatAm in total. So, the pet food environment capacity wise, as Saint Jim just elaborated, is also related to a new facility in Colombia. As mentioned before, this facility is in the region where we have customers, and we're currently currently serving this region out of Brazil. So they're transferring volume, from Brazil to Colombia and don't expect it to be a step change in the regarded to replacement of something which we source from somewhere else at the moment, but it opens up for the capacity for the region going forward. So it supports our growth story for pet food. That is the background for Pet Food's LatAm. I think when we get into the food LatAm business, it getting very nitty gritty at the end of the day. I don't know how you derived to this conclusion at the end of the day. We see a, also for the food environment, a good second quarter as time steering developed. Customers are sitting across the world and we are serving out of Chile, different supplies for food. I would really need to take into the details if you if you wanna have it. Let me hop in, as I would really be honest and tell the same as I said to Heidi, in this region, with these challenges, we have limited visibility. Each number you would get would be something we don't know better. We are surprised as you how good it comes out. We're really thankful to our workforce that they obviously have managed to hang in there. And, we have no we can on the phone or internet connect with our people, there is no way to get in or out there. So that's the situation. We like it or not. The good news is obviously we are successful in this region and giving you a number which just mislead you on would lead you to make wrong models. I think that should be it for the moment. We have been answering your questions for about 1 hour. That was more than than normal, but everything, even the best things should come to an end. So we are happy about the big number of participants and questions. So, please and gentlemen, just please go to the end of our conference call. Thank you very much for your time and your interest in Sunrise. We are really looking forward to seeing and hearing you in the upcoming virtual meetings and hopefully to meet you in person We will publish the results for the 9 months 3rd quarter on October 29th. Is it for today? Goodbye and have a nice day or maybe in isolation? Goodbye. Goodbye. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.